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Optimum should have gone into business rescue months ago – Hogan Lovells

JOHANNESBURG (miningweekly.com) – The public announcement of the Gupta-owned Optimum coal mine going into business rescue has caused much uncertainty for employees and residents living in mine-owned properties are anxious about the implications of this process for their futures.

In an interview, Hogan Lovells partner Gareth Cremen said that Optimum, which is a subsidiary of Gupta-owned Tegeta Exploration & Resources, should have gone into business rescue months ago, before the Bank of Baroda opted to pull out of the country.

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The Bank of Baroda, which last month confirmed it was leaving South Africa, was the last bank willing to do business with the Guptas after four major banks closed their accounts owing to suspicious transactions and reputational issues.

The High Court in Pretoria on Monday dismissed the application of Gupta-linked companies against the Bank of Baroda with costs.

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Judge Ntendeya Mavundla ruled on an urgent application by 19 Gupta-linked companies to prevent the Bank of Baroda from closing its South African operations.

In his ruling, Mavundla said "the bank's right to or not to trade supersedes whatever right, if any, the applicants might have."

“Business rescue proceedings aim to aid a company that is in financial distress, by allowing it to restructure its affairs, assets, equity, debts and liabilities. The goal of effective business rescue proceedings is to rescue a company from financial distress and avoid liquidation, this must be done in a manner that balances the rights and interests of all relevant stakeholders,” Cremen said.

He added that, the implementation of a business rescue plan should result in a better return for the creditors of the company than immediate liquidation would.

“Business rescue would be a better option than liquidation for Optimum. In the mining sector, once the company is liquidated, the company loses the mining right and there’s no value left in the company, other than disposing of assets,” he said.

He added that, by going into business rescue, the company would still preserve the mining right and it could try and restore the mine back to a trading position, which is in the best interest of all stakeholders.

Regarding the employees, he said, these are the bread winners in households and if they don’t get paid or if they lose their jobs, it has a massive knock-on effect.

In terms of Optimum, he said there were benefits to business rescue as the company would be able to cancel onerous contracts and renegotiate supply terms under the business rescue banner.

“It’s a very delicate balancing exercise of rights of all stakeholders.”

He highlighted that the problem with business rescue compared with liquidation, however, was that liquidation favoured companies that are faced with misconduct and impropriety by boards of directors.

“it’s a better alternative because you can convene an insolvency inquiry and truly investigate the affairs of the company. In a business rescue scenario, the practitioner’s powers are somewhat limited,” Cremen said.

He added that, through business rescue, only a limited investigation into the company’s affairs could be conducted.

“It’s supposed to be a transparent process and, at this point and time, it’s too early to tell how transparent Optimum’s business rescue process will be,” he said.

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